Simple solution to imbalance in healthcare costs

THE HIGHER payments received by Massachusetts General and other major hospitals for the same procedures provided at lower prices by local hospitals are, to an economist, a straightforward problem with a simple solution. This type of problem occurs whenever the decision maker is different from the payer.

In this case, the decision maker is the patient, whose out-of-pocket costs are the same regardless of where the treatment is provided. The insurer or the government is the payer. Not surprisingly, the patient, economically indifferent to where he or she is treated, chooses the hospital where he or she expects to receive the best care.

The solution is to charge significant copays generally and to charge even higher copays for the more expensive hospitals. Faced with a bill for an extra $200 or $300 for the privilege of being treated at Brigham and Women's, the patient might decide that for the routine hip replacement or hernia repair, MetroWest Medical Center was just fine. For the more cutting-edge procedures, the patient might consider that the Brigham was worth the extra money.

Employers, public and private, need to insist on healthcare plans with copays that represent significantly higher out-of-pocket costs to the patients at the high-end hospitals. This would align the economic interests of the decision maker and the payer. Mass. General and the Brigham would find their facilities underutilized for the routine procedures, and their pricing would fall into line.

Philip Saunders Jr., Weston
The writer is principal of a firm that provides economic and financial analysis.